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Toronto stocks plunge on disappointing U.S. news

Stock prices in Toronto plunged on disappointing U.S. economic news Wednesday, while other major markets also felt the sting.

The S&P/TSX composite index closed down more than 2 per cent Wednesday at 12,422.12 points, wiping out all of this year’s gains to date.

The selloff was triggered by two separate U.S. reports that showed the service sector grew at its slowest pace in seven months and private sector employers added fewer than expected workers in March.

It was compounded by data that showed U.S. stockpiles of crude oil had reached a 22-year-high, sending the price of crude to its lowest level in almost a month.

“We had a few reports of relatively low importance but all of them pointed the same way. That put a damper on the kind of cyclical stocks that Canada is overweight in,” said Avery Shenfeld, chief economist, CIBC World Markets.

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While the U.S. economy showed some strength in the first three months of the year, in part due to the boost from post-Hurricane Sandy reconstruction, Americans are starting to feel the impact of recent tax cuts, Shenfeld noted.

Canada may see some benefit from higher auto production in the second quarter, but a general slowdown in the U.S. economy “doesn’t bode well for Canada,” Shenfeld said.

The Institute of Supply Management’s gauge of U.S. service industries fell more than expected to 54.4 in March. While a figure above 50 indicates expansion, the service sector is growing at a slower pace. The figure in February was 56.

The ISM survey is based on interviews with purchasing and supply managers in such industries as utilities, retailing, housing, health care and finance.

A separate report Wednesday showed private-sector employment rose by a less than expected 158,000 jobs in March, according to the ADP Research Institute. It was the smallest gain since October and suggests Friday’s U.S. Labor Department report on employment may disappoint.

Meanwhile, the price of crude oil fell the most in four months after a report showed U.S. stockpiles had reached their highest level in more than 22 years.

The Energy Information Administration said Wednesday that oil supplies rose a greater than expected 2.71 million barrels to 388.6 million last week. New technologies, including horizontal drilling and hydraulic fracturing, or fracking, have boosted supplies by reaching oil previously trapped in shale formations.

West Texas Intermediate oil for May delivery fell $2.74 to $95.45 a barrel on the New York Mercantile Exchange. Brent crude for May settlement declined $3.58 to $107 a barrel on London’s ICE Futures Europe exchange.

The Canadian dollar rose 0.04 of a cent to 98.57 cents (U.S.).

U.S. indexes were also lower as the Dow Jones industrials gave back 111.66 points to 14,550.35, the Nasdaq was down 36.26 points at 3,218.6 and the S&P 500 index slid 16.56 points to 1,553.69.

The TSX gold sector dropped about 4.6 per cent Wednesday as June bullion on the New York Mercantile Exchange was down $22.40 at $1,553.50 (U.S.) an ounce on top of a $25 slide Tuesday.

May copper shed five cents to a fresh eight-month low of $3.33 (U.S.) a pound and the metals and mining sector was down 3.3 per cent.

Traders were also rattled after Washington said a missile defence system was being sent to the Pacific island of Guam amid continued threats from North Korea.

The move came a day after the North said it would restart its long-shuttered plutonium reactor and a uranium enrichment plant. Both could produce fuel for nuclear weapons that North Korea is developing.

Also, the South Korean news agency Yonhap said that North Korea’s military has announced that it would take a series of military actions against the United States.

Defence secretary Chuck Hagel said North Korea’s rhetoric presents a real, clear danger and threat to the U.S. and its allies.

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